A New Garage, Historic Low-Interest Rates, Unemployment, and Moving Homebuyers

 Mortgage rates continue to hover at near historic lows according to Freddie Mac’s Primary Mortgage Market Survey? (PMMS?). Interest rates on 30-year fixed-rate mortgages averaged 2.99% for the week ending July 30, 2020 - slightly lower than the previous week’s 3.01%. Interest rates at this same time last year averaged 3.75%. “It’s Groundhog Day in the mortgage market as rates continue to remain near historic lows, driving purchase demand over 20 percent above a year ago,” said Sam Khater, Freddie Mac’s Chief Economist. “Real estate is one of the bright spots in the economy, with strong demand and a modest slowdown in home prices heading into the late summer. Home sales should remain strong the next few months into the early fall.” (3)

According to Black Knight, U.S. mortgage forbearance rates have dropped to 7.7% - a 3-month low. This is the lowest that forbearance rates have reached since mid-April, when the coronavirus was at its peak in New York City. However, this news comes as the $600 unemployment benefit brought on by the CARES Act is set to expire. Because of this, Chief economist of the National Association of Realtors?, Lawrence Yun, believes forbearance rates could begin to rise again stating, “Whether it’s one percentage point or two percentage points, I couldn’t say.” Washington is still working to provide a second phase of enhanced unemployment benefits to hopefully ensure mortgage forbearance rates continue to decline. (1).

 Though mortgage forbearance rates have dropped to 3-month lows, new unemployment claims rose by 12,000 to 1.4 million new filers for the week ending 7/25. This slight uptick in new unemployment claims can most likely be attributed to renewed state shutdowns as coronavirus cases increase across the country. Nevada (+39%), Virginia (+23%) and Kansas (+16%) saw the highest percentage jump in new unemployment requests from the previous week. However, 42 states still reported a decrease in new claims. California (-40,587 new claims), Georgia (-37,732 new claims) and Florida (-21,914 new claims) lead the way with the largest decrease in unemployment claims from the previous week. (2)

With the ever-increasing price of rent across major cities, more and more people across the globe are turning the idea of renting out their garage as a living space into reality. These Accessory Dwelling Units, or ADUs, have become increasingly popular in large cities, such as Los Angeles, over the last few years. In 2016 Los Angeles had 117 new garage conversion permits issued, however in 2018 after a change in regulation, 4,171 new garage conversion permits were granted. Cherry Tung, a YouTuber living in L.A. said the biggest reason she chose to live in a garage conversion as opposed to a normal apartment is the price. Her rent at $950 a month is quite a bit less than the typical $2,000 in her area. Some also believe garage conversions are a great way to help solve homelessness in major cities. Los Angeles mayor Eric Garcetti said, “We thought, what a great way to add to the many strategies that we have to try to end homelessness in LA to try to match folks who are building these units with folks who are coming off the streets.” L.A.’s goal is to “house at least 200 housing-insecure people across nearly 150 ADUs” according to Garcetti's press secretary, Alex Comisar. (4) Contact us for a cash-out refinance to improve your home.

Low mortgage rates and spending more time at home are driving forces for people who are moving for pandemic-related reasons. Of the people who said the pandemic is causing them to move or move sooner, 55 percent said low mortgage rates are a factor in their changed plans, the most common response. Just over half (52 percent) said spending more time at home is a factor, and 40 percent said working from home is contributing to their desire to move. The average 30-year mortgage interest rate was 2.98 percent when the recent Redfin survey was fielded, the lowest in history until that time. (5)

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Jonathan Hallstead

Vice President - Division Manager Retail Lending at Cardinal Financial Company, Limited Partnership - HMGHomeLoans.com

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